Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.2 per cent to 110.9 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

• CBA Household spending intentions: The lift in retail spending intentions in August was reversed in September. But home buying intentions are holding at the high end of the range.

• Reserve Bank: Minutes of the last Board meeting were released. Members “discussed the possibility that policy stimulus might be less effective than past experience suggests.” They also “noted that the housing market and other asset prices might be overly inflated by lower interest rates.”

• Tourism: Tourist arrivals rose by 2.7 per cent in August to record highs with departures up by 1.5 per cent. There were record tourism inflows from nine separate countries including Hong Kong.

• China inflation: Consumer prices rose 3.0 per cent in the year to September (forecast 2.9 per cent). Producer prices fell 1.2 per cent to September in line with forecasts.

The consumer confidence figures have implications for retailers and other consumer-focussed businesses. The Reserve Bank Board minutes provide guidance on interest rate settings. Tourism data is important for airlines, hotels and booking agents.

What does it all mean?

• Just before the first rate cut in June, the consumer sentiment index stood at 118.6. Today the sentiment index stands at 110.9 points, a fall of 6.5 per cent. Aussie consumers may have liked rate cuts in the past when interest rates were at higher levels, but the current ultra-low rates have got consumers spooked. There seems to be a general perception that low rates indicate an economy in trouble, rather than one that just needs a push along. While the Reserve Bank’s mathematical models still perceive that rate cuts work to boost economic activity, the behavioural evidence is that they don’t – or at least that rate cuts have become ineffective.

• If the Reserve Bank and Government want to stimulate spending, then the focus must be on boosting disposable incomes through tax cuts, spending vouchers or handouts.

• A period of interest rate stability may help stabilise consumer sentiment and allow lower borrowing rates and thus the lift in purchasing power to work their magic through the economy.

• Reserve Bank Board members had a lot on their minds at the October meeting. Should they hold back rate stimulus? Would rate cuts create an asset bubble? Does monetary policy still work? They are all reasonable questions, and it is probably fair to say that the answers were far from convincing.

• A record numbers of tourists came to our shores in August – especially from Asia. In-bound tourism numbers were at record highs from nine separate countries, including Hong Kong. Whether motivated by the troubles in Hong Kong or a reflection of our low Aussie dollar, there has been a boost for Aussie tourism operators. Also of note, 19,200 Aussies travelled to Hong Kong in August, the lowest monthly result in 19 months.

What do the figures show?

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.2 per cent to 110.9 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points held since 1990.

• Three of the five major components of the index fell last week:

• The estimate of family finances compared with a year ago was up from +9.5 points to +9.7 points;

• The estimate of family finances over the next year was up from +22.7 points to +23.5 points;

• Economic conditions over the next 12 months was down from -3.4 points to -4.4 points;

• Economic conditions over the next 5 years was down from +5.8 points to +4.0 points;

• The measure of whether it was a good time to buy a major household item was down from +26.8 points to +21.9 points.

• The measure of inflation expectations was steady at 4.1 per cent.

Reserve Bank October Board minutes:

• Last paragraph: “Members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target. The Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

• Risks of lower rates: “Members also noted that the housing market and other asset prices might be overly inflated by lower interest rates. Members acknowledged that asset prices were part of the transmission mechanism of policy, including by encouraging home building. By themselves, higher asset prices were considered unlikely to present a risk to macroeconomic and financial stability. This assessment would need to be reviewed if rapidly increasing asset prices were accompanied by materially faster credit growth, weak lending standards and rising leverage. Although household debt was still considered high, members saw only a limited risk of excessive borrowing at the current juncture: household disposable income growth (and thus borrowing capacity) is weak; the memory of recent housing price falls is still fresh; and banks are still quite cautious in their appetite to lend. Nonetheless, members assessed that close monitoring of this risk was warranted.”

• Delay rate cuts? “Members also considered the argument that some monetary stimulus should be kept in reserve to address any future negative shocks. However, that argument requires changes in interest rates to be the key driver of demand, rather than the level of interest rates, which experience has shown to be the more important determinant. Members concluded that the Board could reduce the likelihood of a negative shock leading to outcomes that materially undershot the Bank’s goals by strengthening the starting point for the economy.”

• Ineffective policy? “Members also discussed the possibility that policy stimulus might be less effective than past experience suggests.”


• Tourist arrivals rose by 2.7 per cent in August – the biggest rise in three months. Arrivals are up 5.1 per cent on the year.

• Aussie tourist departures rose by 1.5 per cent in August after declining by 4.4 per cent in the prior two months. Departures are up 1.2 per cent on the year.

• In August, tourists from Greater China (China and Hong Kong) totalled 158,200 (mainland China 129,800; Hong Kong 28,400), ahead of New Zealand (118,600).

• Mainland China is the largest source of tourists to Australia. Over the past year 1,457,000 tourists came to Australia from China – the second highest annual result and up by 1.7 per cent on the year earlier.

• A record 382,900 Indian tourists travelled to Australia over the year to August, up by 11.4 per cent on a year ago.

• In August, there were record tourist inflows from Fiji, Thailand, Vietnam, Singapore, Hong Kong, Bangladesh, India, Pakistan and Canada,

• And in the month of August a record number of Aussies travelled to Indonesia and Nepal.


• In August, there were 62,500 permanent and long-term arrivals in Australia. The annual number of permanent and long-term overseas arrivals rose from 844,680 people to 846,510 in August, up by 3.0 per cent over the year.

• In net terms (arrivals less departures) permanent and long-term overseas arrivals totalled 299,410 over the year to August – a 5-month high but still below the record high of 353,480 in the year to April 2009.
What is the importance of the economic data?

• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

• The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.
What are the implications for interest rates and investors?

• Retailers need to put their faith in tax cuts rather than rate hikes. Unfortunately, if consumers remained spooked about ultra-low interest rates, they could decide to save more of their tax offset payments, rather than spend. A period of interest rate stability may prove important to lift spending intentions.

• The Reserve Bank must start entertaining the notion that recent rate cuts have made consumers more worried about the outlook for the economy and their own individual finances rather than more positive.

• Lower interest rates have served to push down the Aussie dollar, thus weighing on consumer sentiment and consumer spending. And while a lower Aussie dollar boost business competitiveness, business confidence has actually fallen as rates moved to historic lows.

• More tourists are coming to Australia and they staying longer – it is an impressive combination that is adding spending momentum to the economy.

• Commonwealth Bank Group economists still expect a rate cut in February 2020 in line with forward guidance by the Reserve Bank. But tax cuts are still preferred to rate cuts in order to boost spending.

Originally published by Craig James, Chief Economist, CommSec